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Stuck in a trading range - for now

Friday's US military strike against Syria reminded markets of the importance of factoring in geopolitical risk when making investment assessments.

The mediocre payrolls report, in the meantime, reminded markets that maybe the United States economy is not on the firm footing that everyone assumes.

If the first reminder suggested that stocks could come under pressure, the second implied that maybe there will be only one more interest rate hike this year.

Put them together and the likely outcome is that markets will remain within a trading range - for now.

The Syrian missile strike, coming at a time when Chinese leader Xi Jinping was visiting the US, suggested to some that the Trump administration was taking the opportunity to signal it was prepared to get equally tough with North Korea, whose government Beijing supports.

It is a murky business, no doubt, there can be plenty of bonhomie on the surface, but there are all sorts of simmering tensions beneath to consider.

Apart from the Middle East and North Korea, the other hotbed of geopolitical risk is France, where the first round of the presidential electionis due on April 23.

Deutsche Bank Wealth Management's global chief investment officer Christian Nolting and Mr Stephane Junod - chief investment officer, EMEA (Europe, Middle East & Africa) - said that although the consensus remains that National Front candidate Marine Le Pen, who wants France to exit the eurozone, will make it into the second round of the presidential contest, she will be beaten by either of the other two candidates.

"But it is also worth evaluating the risk scenario of a Le Pen win. The impact of this would be felt across the European periphery in both bond and equity markets," they said.

"We estimate that Italy and Spain would see their bond yields rise to levels not seen since the bond crisis of 2011-2012, while equities might fall by around 10 per cent...

“The impact of this would be felt across the European periphery in both bond and equity markets.”Deutsche Bank’s Mr Christian nolting and Mr Stephane Junod on the event of a Marine Le Pen victory in the French presidential election

"The implication is that, even if a Le Pen victory remains improbable, just a small possibility of such an outturn could still unsettle European markets as the election approaches. Volatility and market timing should remain important issues, even if the European economic backdrop continues to improve."

Over in the US, the minutes of the Federal Reserve's meeting last month unnerved Wall Street in the final minutes of Wednesday trading because of the suggestion that there could be two more rate hikes this year instead of the expected one.

As of now, the consensus appears to be that the next hike will be in June, though what happens after is anybody's guess.

On this front, readers may wish to note that the Atlanta Fed's "GDP Now" model gives Q1 US gross domestic product growth as just 1.2 per cent as of April 4 - not terribly hot enough to justify two more rate hikes this year.

Similarly, there was Friday's big payrolls miss when only 98,000 non-farm jobs were added last month versus the expected 180,000.

Despite what may well turn out to be a lacklustre Q1, US stocks are not far from all-time highs, driven there by expectations of a "phenomenal" budget.

By now, many in the market who have witnessed the incumbent administration's spectacular healthcare reform failure would know that budget promises are ringing hollow, yet Wall Street still clings to hope that Mr Donald Trump might still be able to deliver.

Yet again, this implies that prices will remain trapped within trading ranges until more is known.